Tilney Smith & Williamson comments on UK GDP data

by | Feb 11, 2022

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Daniel Casali, Chief Investment Strategist at Tilney Smith & Williamson, the wealth management and professional services group, comments on the release of the latest UK GDP data: 

UK real GDP fell -0.2% in the month of December, less than consensus expectations of a -0.5% fall and is up from a gain of 0.9% in November.

Breaking down the monthly data, services fell -0.5%, but there were gains in both construction of 2.0% and 0.3% in production.

Despite the sluggish end to the year, the UK real GDP grew by 7.5% in 2021, the fastest rate in the post-war period. This followed a record decline of -9.4% in 2020 during the pandemic.


The GDP data decline in December was expected following the government’s “Plan B” COVID restrictions that began earlier in that month as the Omicron variant spread. However, looking through the restrictions that have now been lifted in England and largely round the rest of the UK, surveys show that economic outlook still looks constructive for the Queen’s Platinum Jubilee year. For instance, the latest January CBI industrial trends survey showed that investment intentions over the next year rose to their peak level since 1988, while order book volumes are running at close to their highest level since the data began in 1977 (coincidentally the Queen’s Silver Jubilee year). Even with rumbling concerns over the UK’s trade relationship with the EU, trade sector sentiment is showing distinctive signs of improvement. The CBI’s survey of export order book volumes reported a net balance of -10, above the long-term average of -19, and has improved dramatically since a record low of -79 in June 2020 during the height of the pandemic.

Other surveys are holding up well. In January, the final UK composite (manufacturing and services) PMI came in at 54.2, comfortably higher than the boom-bust threshold of 50. Importantly, the services PMI is running at a similar level and indicates that the sector has shrugged off COVID concerns and rising inflation so far.

Nevertheless, households face headwinds over the coming months. First, Ofgem, the UK energy regulator, announced in February that following the surge seen in wholesale gas prices, the energy price cap will rise by 54% from 1 April. The government has however indicated it will offer a package of measures to mitigate the impact of higher energy bills. This could include an across-the-board discount on energy bills, but it is unlikely to happen until October at the earliest and may encourage households to lower expenditure in the meantime. Second, both monetary and fiscal policy is being tightened, with the BOE increasing interest rates to 0.5%, and National Insurance also set to increase in April. The rising cost of energy and policy tightening will be a drain on consumer finances.


On balance, despite consumer-facing headwinds, recent forward-looking surveys suggest that UK growth is holding up and provides a layer of investor support for its equity market.

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